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Fighting Iraq, Will It Re-ignite Inflation?

Thoughts About How Much It Will Cost You.

Nobody ever fought a war for free, and neither are we. Clearly a war with Iraq is going to cost us, you and me, but how much? A lot.

I want to focus here on just the dollars, not the blood or the lives we’ll lose. I’m not an economist, but I do have some sense of history. It seems these are areas we ought to be hearing more about, and aren’t.

Re-Igniting Inflation

In his State of the Union speech, President Bush is proposing to lower taxes. He is also proposing to fight Iraq at the same time. Lowering taxes means less money will be coming into the Federal government, at least in the short term. Fighting Iraq means the Federal government will be spending more money.

During the Vietnam War, President Johnson faced the same situation. It was called guns or butter. It meant you had to raise taxes to bring in more money to spend more money to fight a war. President Johnson chose not to raise taxes from 1964 until 1968, the years of the biggest increases in war expenditures.

In 1969, a 10% surtax was imposed (you figured out your tax bill and added 10% more) which President Nixon kept in place for several years. Nixon also imposed wage and price controls for a while.

But, it was too late. President Johnson’s policies had already kicked off a rise in inflation. In 1960, the inflation rate was 1.72 percent. In 1970, the inflation rate rose to 5.72 percent. By 1980, it reached its height at 13.50 percent.

President Reagan and the Federal Reserve threw the country into the worst recession it had experienced since the Great Depression in the 1980s. They raised the interest rate to 21.5 percent, (can you imagine paying a mortgage at that rate?) and the unemployment rate shot up to 10.8 percent in December, 1982. They broke the back of inflation.

So, our country has experienced the effects of a policy of don’t tax and do spend. The results were terrible. Now the proposed policy is to tax less and spend more. Worse still.

Unless President Bush has learned some magic about voodoo economics from his dad, something unknown to anyone else in the history of mankind, this policy is going to cost you and me big time.

I have read his lips and found the message wanting.

Anybody who has debt tied to the prime rate, such as an adjustable rate mortgage or an adjustable rate credit card, had better give strong consideration to getting a fixed rate, right now.

Direct Costs of a War

Congress asked the Congressional Budget Office how much a war would cost. The CBO said it would cost $ 9-13 billion to transport the troops and equipment to Iraq, $ 6-9 billion per month for each month of fighting, and $ 5-7 billion to bring everybody back home.

The cost estimate includes hiring American civilian cargo ships to transport equipment. The Navy can’t carry the cargo anymore. It has lost its ability. The US has not had to resort to hiring foreign vessels from countries such as Panama, Liberia, the Bahamas, or Malta, yet. The capability of the US to fight a two front war is questionable.

President Bush is vague about the objectives of a war with Iraq, and how we can tell whether or not we won. If the US does conquer Iraq, it will need to maintain an occupying Army there for an unknown period. The CBO estimates that will cost $ 1 -- 4 billion per month.

So, for a quick and dirty one month war, the CBO estimate ranges from $ 20 – 29 billion, plus another $ 12 -- 36 billion a year to keep an Army there. In Gulf War I, the Saudis picked up most of the tab. This time around, they likely will be less charitable.

If the war lasts longer, then the price goes up, of course. And the CBO estimate does not include the costs for decontamination in the event of nuclear, chemical, or biological warfare, a dirty war.

Decontamination efforts for the Brentwood Postal Facility in Washington, DC, which had two letters with anthrax go through, have taken seventeen months so far, and the facility will re-open in April under the best circumstances. The clean-up cost is roughly $60 million.

I don’t know how long it will take to decontaminate fighting vehicles, tanks, helicopters, and other materiel. You can bet it will cost.

Increased Gasoline Costs

Gas prices at the pump have been rising. The national average for a gallon of regular gas is now $1.47 as of January 27, 2003, up 37 cents a gallon from a year ago.

Saddam Hussein has said he will set his oil wells on fire if he is losing the war. When he did that in Kuwait, a year went by before all the fires were put out. Probably Hussein has since figured out better ways to keep the home fires burning, but we can be optimistic here and figure it will take a year to extinguish the blazes.

The CBO estimated ten years ago that a 24 cent increase in the price of gas translated into an average increase of $179, which expressed as 2003 dollars works out to $222, with some regional differences across the country (more expensive in rural areas and in the South).

The Stock Market Tanking

Right now, prices on the New York Stock Exchange are tanking. The DJIA hovers around 8,000 currently. The drop supposedly is based on investor jitters over the war. People and institutions which rely on income from the stock market are hurt by this drop.

Currently, 84.3 million investors are in the stock market, representing 49.5% of American households, according to the Securities Industry Association. A lot more Americans than ever before are now effected by fluctuations in the stock market. Charities report they are getting fewer donations because of the losses people are having in the stock market.

The Deficit

Remember the days when every politician in Washington, didn’t matter which party, was mouthing off about the deficit? It was doom and gloom all the way about how the country was going to be crushed under the debt burden. Today, not a peep. Has the deficit gone away? Nope.

What’s happened is that between 1997 and 1998, the US achieved a balanced budget after almost two and a half decades of deficits. For the next three years, the country had an increasing surplus. The Government was living within its means, in fact, taking in more money than it spent.

That was more than the politicians could handle. In 2001, the surplus dropped almost in half, the trend continued in 2002 with a shortfall of $159 billion, and on January 29, 2003 the CBO estimated a deficit of $199 billion for this year and $145 billion in 2004. The White House estimates the budget deficit for 2003 will be $307 billion, and drop to $304 billion in 2004.

The CBO figures are optimistic. They’re based on the idea Congress doesn’t cut taxes or increase spending for such things as, say, a war. The White House figures are likely closer to reality. For example, President Bush is proposing some new spending such as $6 billion for effective treatments against things like anthrax, botulinum toxin, ebola, and plague.

Interestingly, under the Homeland Security legislation recently enacted, manufacturers may produce these with no liability whatsoever, even if they know what they’re selling won’t work or is actually harmful. So, first we have the law which shields them, and now here comes the charity money for American corporations.

President Bush’s charity using the public’s money extends to providing health care for Africans in Africa and people from the Carribean in their home countries. He is proposing $15 billion to do this. Let’s see: $6 billion to keep Americans alive, $15 billion for foreigners. And no specific legislation was proposed so the working poor and the poor in America can get adequate health care. Hmm. Kind of makes you wonder about some people's priorities.

Maybe it’s time to remember the old adage “Charity begins at home.” And use the $15 billion to pay for health care for Americans, such as veterans, the ones we already have, and the ones we’re about to create.

Then, if we have anything to spare, maybe we could use it to aid the Christians being persecuted in Vietnam.

If this Congress is as gutless as the last one, don’t look for them to fall on their sword to do the right thing. Just get ready to shell out. It’s "that old black magic" weaving its spell.

© Copyright David Chananie 2003 All rights reserved. Dr. David Chananie is an expert on the Vietnam war. He speaks internationally on radio talk shows about the topic: “Let’s Remember Vietnam, Not Repeat It.” His latest book is Not Yet At Ease: Photographs of America’s Continuing Engagement With the Vietnam War. This is an intellectual product to use in the fight against terrorism mandated under the provisions of the Homeland Security legislation. Electronic redistribution is allowed provided you don’t change the file. Address any comments and questions to Dr. David Chananie at author@www.NotYetAtEase.com.


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